Need to watch out for inflation impact: Bajaj Allianz General Insurance CEO

The general insurance industry has reported sound growth in the first quarter (Q1) of financial year 2022-23 (FY23) thanks to group health and motor businesses, while retail health — the growth driver for the past two years — seems to have slowed. Tapan Singhel, managing director and chief executive officer of Bajaj Allianz General Insurance, spoke to Subrata Panda in an interview about the emerging trends, impact of inflation, and prospects of motor business. Edited excerpts:

How was business in Q1, given there were no restrictions because of Covid?
 

The big issue for the general insurance industry across the globe is inflation. Due to high inflation, the claims cost for the industry has moved up. When the industry does the pricing, these sudden blips are not accounted for. This is a huge problem for the industry.

The growth in the industry is looking good because of the low base of the Covid years. Having said that, the industry has grown in double digits even in Covid times. And it will keep on growing well. The thing to watch out for is the inflation impact and how the industry looks at pricing it going forward.

As a company, we have grown more than the industry and ensured that we have a profitable book. 

Claims ratio has increased, leading to a rise in combined ratio. What is the reason behind the increase?
 

It is simply because of the spurt in inflation, which was not accounted for while the pricing was done. This is hurting the claims ratio. Also, with no restrictions, there are now vehicles on the road. When there are more vehicles on the road, the frequency and severity of claims also goes up. This is not just true for our company but for the entire industry.

Data suggests retail health has slowed down and it is group health that is driving growth in health premiums. What is your assessment on this issue?\
 

Group health is an annual contract in most of the cases and the price revision happens whenever the contract comes up for renewal. Because of Covid claims and inflation, there has been price correction in the group health business. So, the group health premium growth is perhaps because of the price correction that has happened. The number of policies might not have seen that much growth.

In retail health, there is a three-year lock-in period so the price correction does not happen annually. Some companies have hiked prices and you can see growth in those companies.

Are you looking to increase retail health prices anytime soon?
 

We, as a company, keep the prices at the optimum level. So, we had already done that. The problem with retail health pricing is if you have a three-year lock-in and the medical inflation is around 15 per cent, we will see 45 per cent inflation happen by the time the price can be corrected. Add to that, the age of the consumer moves up. So, the price correction suddenly hits at 60–70 per cent. That is why with changes like “use&file” coming through, these aberrations will be ironed out.

General insurers have seen even lower growth in retail health. What is the reason behind this?
 

Standalone health insurers have an advantage over the general insurance companies when it comes to agent procurement. They can work with agents who are working with life insurance companies, and the facility is not available to general insurers. Insurance is distribution-led. So any company that can create distribution at a large scale will have better growth than other players.

Motor insurance premiums seem to have picked up, albeit on a low base. Do you think the motor segment has stabilised now we will see good growth going ahead?
 

It is too early to say. The semiconductor issue is not completely behind us. We will have to watch this segment closely, at least a couple of more quarters, to see how it is performing.

Any update on surety business? Have the concerns been addressed by the regulator and the government? 
 

The recovery right has to be there. That is why it is taking so much time to launch the business. We are set to go, we have the policy wordings and the basic framework ready, but we do need the recovery right. From a risk perspective, it is not appropriate if we start the business without the recovery right. We have spoken to the government and the regulator on this issue. At the same time, we are talking to reinsurers.

General insurers are not too keen on the obligatory cession ceded to GIC Re.
 

The issue is not about cession. The issue is about the insurers getting the cost they incurred for procuring the business. The commissions paid on the obligatory cession is much lower than the cost incurred by the companies to procure that business. So, an insurance company is making a loss on the business they are ceding from Day Zero. The demand from the industry has been that there has to be fair play. The cost incurred by the companies to procure the business should be compensated for or do away with the obligatory cession completely.

Is there any plan to list the company?
 

This is something that the shareholders will decide. From my perspective, what difference does it make? We have a 349 per cent solvency ratio, the highest in the industry. We have not taken any capital in the past 16 years. We have been growing faster than the market. Our shareholders are very strong. Disclosure in the general insurance industry is very good. So there is no compulsion to go for a public listing.